Intellectual Property and
Other Legal Issues for the
Entrepreneur
Intellectual Property
Includes:
Patents.
Trademarks.
Copyrights.
Trade secrets.
Represents important assets to the entrepreneur.
Should be understood even before engaging the
services of an attorney.
Selecting a Lawyer
Lawyer may work on a:
Retainer basis.
One-time fee.
A good working relationship with a lawyer:
Eases some of the risk in starting a new business.
Gives the entrepreneur necessary confidence.
Entrepreneur can offer lawyer stock in exchange for
the services.
Types of Patents
Patent: grants holder protection from others making,
using, or selling similar idea; issued by the PTO.
Utility patent: grants owner protection from anyone else
making, using, and/or selling the identified invention.
Design patent: provide inventor with a negative right
excluding others from making, using, or selling an article
having the ornamental appearance given in the drawings
included in the patent.
Plant patent: given for new varieties of plants, represent
a limited area of interest.
International Patents
The Patent Cooperation Treaty (PCT) was established
to provide firms protection in global markets.
Has over 100 participants.
Facilitates patent filings in multiple countries in one
office.
Administered by the World Intellectual Property
Organization (WIPO) in Geneva, Switzerland.
Provides a preliminary search that assesses whether
filing firm will face infringements in any country.
Significant differences may exists in patent laws in
each of these countries.
The Disclosure Document
Statement to U.S. Patent and Trademark Office by
inventor disclosing intent to patent idea.
Establish a date of conception of the invention.
Important when two entrepreneurs file patents on similar
inventions.
Relevant when foreign companies are involved.
To file a disclosure document:
Prepare a clear and concise description of the invention.
Include photographs.
Include a cover letter and a duplicate with the
description.
The Patent Application (1 of 2)
Introduction
Background.
Advantages of the invention and the nature of problems
that it overcomes.
States how the invention differs from existing offerings.
Description of invention
Description of the drawings that accompany it.
Detailed description of the invention.
The Patent Application (2 of 2)
Claims
Serve to specify what the entrepreneur is trying to
patent.
Essential parts of the invention should be described in
broad terms
Claims must not be too general either.
Application should contain a declaration or oath signed
by the inventor or inventors.
Patent Infringement
Many businesses, inventions, or innovations are results
of improvements on, or modifications of, existing
products.
Copying and improving on a product:
May be perfectly legal
A good business strategy.
Products can be licensed from the patent holder.
Advisable to hire a patent attorney to ensure no
possibility of patent infringement.
Business Method Patents
Growth of Internet use and software development has
given rise to use of business method patents.
E.g. Amazon.com.
Firms that hold these patents use them to assault
competitors.
Subsequently provide a steady stream of income from
royalties or licensing fees.
Trademarks
A distinguishing word, name, or symbol used to
identify a product.
Can last indefinitely.
Can be filed solely on intent to use the trademark in
interstate or foreign commerce.
Can also be filed with intent to use in the future.
Categories:
Coined marks.
Arbitrary marks.
Suggestive marks.
Descriptive marks.
Registering the Trademark (1 of 2)
Federal registration of trademarks – PTO.
Filing must meet four requirements:
Completion of the written form.
A drawing of the mark.
Five specimens showing actual use of the mark.
The fee.
Initial determination of suitability takes 3 months.
Objections must be raise within six months, or
application is considered abandoned.
Right to appeal in case of refusal.
Registering the Trademark (2 of 2)
Once accepted, trademark is published in the
Trademark Official Gazette to allow any party:
30 days to oppose.
Request an extension to oppose.
Registration issued if no opposition is filed.
Procedure takes about 13 months from initial filing.
Copyrights
Right given to prevent others from printing, copying, or
publishing any original works of authorship
Issues surrounding access to material on the Internet
have led to major legal battles for the entertainment
industry.
Example: Napster.
Copyrights are registered with the Library of Congress
Usually do not require an attorney.
Term of the copyright is the life of the author plus 70
years.
Trade Secrets
Protection against others revealing or disclosing
information that could be damaging to business.
Have a life as long as the idea or process remains a
secret.
Not covered by any federal law but is recognized under a
governing body of common laws in each state.
Entrepreneur needs to take proper precautions.
Legal action can be taken only after the secret has
been revealed.
Licensing (1 of 2)
Contractual agreement giving rights to others to use
intellectual property in return for a royalty or fee. Type
of licensing:
Patent license agreement: specifies how the licensee
would have access to the patent.
Trademark: involves a franchising agreement.
Copyrights.
Licensing has become a revenue boom for many
Fortune 500 companies.
Licensing (2 of 2)
Question to be considered by an entrepreneur:
Will customers recognize licensed property?
How well does the licensed property complement my
products or services?
How much experience do I have with the licensed
property?
What is the long-term outlook for the licensed property?
What kind of protection does the licensing agreement
provide?
What commitment do I have in terms of payment of
royalties, sales quotas, and so on?
Are renewal options possible and under what terms?
Product Safety and Liability (1 of 2)
Responsibility of a company to meet any legal
specifications regarding a new product covered by the
Consumer Product Safety Act.
First passed in 1972.
Created a five-member commission with:
Power to prescribe safety standards.
Responsibility and power to identify substantial hazards and bar
products it considers unsafe.
Act was amended and signed into law in 1990.
Establishes stricter guidelines for reporting product
defects and any injury or death resulting from such
defects.
Product Safety and Liability (2 of 2)
Claims regarding product liability usually fall under one
of the following categories:
Negligence.
Warranty.
Strict liability.
Misrepresentation.
Best protection against product liability is to:
Produce safe products.
Warn consumers of any potential hazards.
Insurance
Provides a means of managing risk in the new
business.
Entrepreneurs usually have limited resources in the
beginning.
Some insurances are required by law and cannot be
avoided.
Other insurances are not required but may be necessary
to protect the financial net worth of the venture.
Types of Insurance and Possible Coverage
<<Insert Table 6.4>>
Contracts (1 of 2)
A legally binding agreement between two parties.
Business deals are concluded with a handshake, but in
case of disagreements, entrepreneurs:
May find that there is no deal.
May be liable for something never intended.
Rule is to not to rely on a handshake if deal cannot be
completed within one year.
Courts insist on a written contract for all transactions
over $500.
Contracts (2 of 2)
Four essential items in an agreement to provide the
best legal protection:
All parties involved should be named and specific roles in
the transaction specified.
Transaction should be described in detail.
Exact value of the transaction should be specified.
Signature(s) of the person(s) involved in the deal should
be obtained.
